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Hoping to win a bigger share of big-name advertising dollars, Facebook last week outlined a new
effort to track the influence of online advertising on consumer purchases in the offline world. But
the effort has caused privacy advocates to raise an alarm.

The giant social network said it’s working with a market analytics firm, Datalogix, to measure
how often users see a product advertised on Facebook and then buy that product later in a retail
store. Datalogix says it uses information from customer-loyalty programs and other sources to track
purchases by more than 100 million households at more than 1,200 retailers in the offline,
bricks-and-mortar world.

With the new effort, formally unveiled at an advertising conference in New York, Facebook hopes
to set itself apart from rivals such as Google, which has built a huge business in part by showing
advertisers how often people click on an ad to get information or make a purchase immediately,
while they’re still online.

But even though Facebook says it compares only encrypted information with Datalogix, privacy
groups are criticizing the new effort and some of Facebook’s other recent attempts to build its
advertising business by helping marketers zero in get Facebook users.

Those other efforts include the recently launched Facebook Exchange, which lets a company show
ads to users on Facebook after the users have visited that company’s website outside the social
network. Facebook also has started a program that lets a company show ads to users on Facebook if
the user has already provided an email address to that company.

In all three programs, Facebook says it uses only encrypted versions of users’ identifying
information, without sharing details about individuals. But some critics worry that Facebook and
its advertisers will be able to accumulate detailed profiles of individuals and their online
behavior.

After word of Facebook’s partnership with Datalogix surfaced in news reports, two privacy groups
wrote to the Federal Trade Commission last week. The groups urged the FTC to investigate whether
the arrangement violates a 2011 legal settlement in which Facebook agreed to notify users when it
shares their data and to obtain users’ consent before sharing information in a way that exceeds the
privacy options a user previously selected.

Facebook’s efforts to “anonymize” the user data it shares with Datalogix might not be
sufficient, say advocates at the Electronic Privacy Information Center and the Center for Digital
Democracy.

After the groups complained, Facebook published a blog post that described its new ad programs,
while reiterating that it does not share individual user data with Datalogix or any outside
companies. The company later added: “We are confident that we are in compliance with our legal
obligations.”

Facebook said it compares lists of encrypted data, containing bits of text known as “hashes,”
from its advertising system and from Datalogix. The hashes are based on identifying information,
such as an email address, so an analytics program can find those cases where the same person has
been shown an ad on Facebook and later made a purchase at a store.

But the encryption can’t be reversed, so the hashes can’t reveal an individual’s actual email
address or any other personal information, according to the post by Facebook privacy engineer Joey
Tyson. He said Datalogix uses the results to create “aggregate reports” about groups of people who
were shown certain ads.

“Advertising helps keep Facebook free,” Tyson added. “We believe we can create value for the
people who use our services every day by offering relevant ads that also incorporate
industry-leading privacy protections.”

Facebook is under pressure to expand its advertising business after its stock price plunged amid
signs that the company’s growth has slowed. The Datalogix program is aimed at big-name
consumer-brand advertisers that want to build recognition for their products.

The data from Datalogix can help advertisers see which ads work, and decide when and how often
to run them, Facebook says.

Some advertisers have felt that Facebook ads aren’t as effective as ads on other websites when
it comes to immediate “clicks,” said Debra Aho Williamson, an analyst with eMarketer. “So Facebook
needs to have other metrics to show their ads succeed.”